‘If you earn it, declare it’: ATO heaps scrutiny on investors this EOFY

“Where information doesn’t match, returns may be adjusted, refunds delayed, or investors contacted to provide records,” a spokesperson told SPI.

“Ongoing errors can lead to penalties, interest and closer scrutiny in future years,” it said.

CPA Australia tax lead, Jenny Wong, said the ATO had updated its guidance this year to make it clear that all payments connected to the use of a property must be reported.

“The key message this tax time is simple: if you earn it, you need to declare it,” she told SPI.

Here are the ATO’s key areas of focus this year:

Declaring all rental income

When declaring their income, the ATO said investors needed to factor in all rentals, including those on sharing platforms, short-term rentals, and overseas properties.

Additionally, property owners renting out a room or part of a home to family or friends also have to declare their income on their documents, even if the rent is below market value.

Wong said a common mistake was assuming that informal arrangements, such as renting to family or friends, didn’t count as income.

“They absolutely do,” she said.

According to the ATO, investors must also ensure to report rental income as the gross amount received, before agent fees or expenses, in the year it is paid.

Claiming deductions correctly

When claiming deductions, the ATO said expenses must have a clear connection to rental income rather than personal use.

For costs linked to rental income, investors must then distinguish between expenses for repairs and maintenance, and capital works or improvements.

Additionally, expenses for properties rented out only part of the year, partly used privately, or rented below market rates, must be proportionate to how often they were used to generate income.

Wong said this year the ATO had a sharper focus on ensuring that short-term rental properties were genuinely used to produce income rather than for private use.

“If a property is used for both rental and private purposes, you can’t just claim 100 per cent of the expenses – it needs to be split appropriately,” she said.

Further, interest can be claimed only on the portion of a loan used for the rental property, not on private expenses funded through redraws or refinancing.

“Loan interest is another trap. If you’ve mixed personal and investment borrowings, you can only claim the portion that relates to the income-producing asset and that can become quite complex over time,” Wong said.

Keeping good records

To assist investors in declaring their income and claiming deductions correctly, the ATO issued a reminder to stay on top of their record-keeping.

Wong said investors needed to keep good, clear records of rental periods, private use, and how they’ve calculated their claims.

“The safest approach is to be accurate, keep good records, and if you’re unsure, seek advice from a registered tax agent early,” she said.

She said that the ATO had strong data-matching capabilities and that it was increasingly focused on property investments, warning that underreporting income was likely to be detected.

“Getting it right upfront is always easier than fixing it later,” Wong concluded.

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